The Real Estate Connection - News from the Wisconsin Real Estate Program

Ask the Real Estate Expert

The Real Estate Connection: March 2012
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Q: What are some of the key lessons from past U.S. housing programs and policies, including longstanding programs like public housing Section 8 Housing Choice Vouchers, and the Section 42 Low Income Housing Tax Credit (LIHTC), as well as some recent initiatives like the Home Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternatives (HAFA) Program. How can we apply those lessons to future policy prescriptions?

Stephen MalpezziThis month's question is answered by Stephen Malpezzi, Lorin and Marjorie Tiefenthaler Professor of Real Estate, and Department Chair, Department of Real Estate and Urban Land Economics. His research includes work on economic development, the measurement and determinants of real estate prices, housing demand and the effects of regulation and other economic policies on real estate markets.

Last fall, Professor Malpezzi presented overviews of U.S. housing markets and policy to the Korean Development Institute (KDI) and to Korea' s Ministry of Construction, with lessons for Korea's housing policies. In late March, he'll be visiting Oxford University, joining colleagues from around the world at a meeting organized by Professor Paul Collier, author of The Bottom Billion, to discuss the future research agenda for housing and urban development in sub-Saharan Africa.

A: Wow, those are big questions - so big that my friend Richard Green and I wrote a book about the answers a decade ago. We're currently writing the second edition of A Primer on U.S. Housing Markets and Housing Policy, along with our new coauthor, Paul Carrillo.

Here are a few robust findings that have held over time for the U.S., and appear to have some applicability to many other countries.

If you're going to provide some public support to keep housing "affordable" to low income households, the serious studies consistently show that you'll get more bang for the taxpayer buck by using "demand side" programs like Housing Choice Vouchers, instead of supply side programs like public housing or the LIHTC (although the LIHTC works better in many ways than old-style public housing). We also know that the money we spend on all these programs together is dwarfed by the money we spend through "tax expenditures," chiefly the mortgage interest and property tax deductions. Furthermore, since the bulk of the benefit from these deductions go to those in higher income brackets with larger mortgages.

Taking all the federal programs in, the average very low income household - under $10,000 annual income - gets about $1,000 in housing subsidies (though some of these households get much more, and many get nothing). The average household with income between $200-500,000 gets about $9,000 in housing subsidies, almost exclusively through tax breaks. The average household in the $40-50,000 range gets about $300, and those around $20-40,000 get less than that.

If we wanted to subsidize homeownership, we'd do better by redesigning vouchers to work better for homeowners (currently they're almost exclusively a rental program), and/or we'd switch from a deduction to a credit, and redesign the interest and property tax deductions to send the bulk of their benefits to the middle class instead of the top decile. If we wanted to help low income households, we'd increase our spending through the Housing Choice Voucher program, and make some changes to the rules that would increase the program's flexibility and efficiency (e.g. by making the leases more landlord-friendly).

What can I say about HAMP that we haven't already said at our website on the Wisconsin Foreclosure and Unemployment Relief (WI-FUR) program? It was a badly designed and executed program that failed to make a contribution to clearing out the housing mess and getting supply and demand back in synch. There were a few improvements on the margin, as when a small program variant addressed the serious problems of unemployed homeowners' facing foreclosure (the Home Affordable Unemployment Program, or HAUP) and the HAFA program, that provides a mechanism for "short sales" or deeds-in-lieu of foreclosures for (mostly) Fannie and Freddie backed mortgages. But to date these variants haven't been applied to enough transactions to make much of a dent in the foreclosure backlog.

Why do we still spend the bulk of our taxpayer's contributions to housing so inefficiently and ineffectively? Badly designed programs can take on a life of their own. Making mid-course corrections in ineffective policies like the supply-side programs, the tax code, or HAMP are especially difficult when bureaucratic inertia meets political gridlock.

What are the lessons for other countries? First, do no harm. Be careful about putting complex project-oriented programs in place, which are hard to remove; thing about a housing allowance system instead. Be very careful how you treat housing in the tax code. And, there are lots of things we can talk about another day, such as how to put in place a system of land use and development regulation that appropriately mitigates the "external costs" of development like congestion and environmental spillovers, while producing enough housing suitable for your country's citizens.

You can continue the conversation on housing policy at the Wisconsin Real Estate and Economic Outlook Conference on June 1st in Madison. The theme is "Building a Housing Policy That Works" and the featured speakers include Karl "Chip" Case, professor and co-founder of the Case-Shiller Home Price Index; Shaun Donovan, Secretary of HUD (invited); and Lawrence Yun, Chief economist and senior vice president of research at the National Association of Realtors.

Additional Resources:

Our new "Ask the Real Estate Expert" column is an opportunity for our readers to get answers on pressing questions on the economy, housing or real estate from the experts affiliated with the Graaskamp Center. This includes our faculty, lecturers and industry leaders from our Board of Advisors and alumni. We will review the questions submitted, pick the best ones to have an expert answer, and post them on the newsletter each month. Send your question to

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Featured Events

Attention Employers! Networking Receptions to be Held in Chicago and Minneapolis
If you are an employer who is looking for talent who can make an immediate impact on your company, you are invited to join us at networking receptions in Chicago on March 27th and in Minneapolis on April 17th. You’ll meet our staff of career placement professionals, learn more about the Wisconsin School of Business, and hear how we can make your recruitment efforts efficient and successful. We hope to see you there!

To make your reservation or to learn more about Wisconsin’s career placement services, please email Matt Nelson, associate director of the MBA Career Management Center, at or 608-265-5102.

Round Three Application Deadline for Real Estate MBA is March 16
The application process for the Wisconsin Real Estate MBA is well-underway. The second round deadline is March 16. Alumni and friends of the program are encouraged to refer candidates to the Graaskamp Center. Please contact Sharon McCabe or apply here. For some application advice, see Sharon's tips on our blog here.

Spring Board Meeting – “New Beginnings: Assessing the State of Our Industry”
On April 17-18 at the Four Seasons Hotel in Chicago, the Graaskamp Center will bring together an all-star lineup of real estate leaders and renowned academics to discuss “New Beginnings: Assessing the State of Our Industry.” The keynote address by Lee Neibart, Global CEO of AREA, on Tuesday evening and the sessions on Wednesday will explore the outlook for the real estate industry, provoke discussion on long delayed issues of debt resolution and infrastructure investment, and look to broader global issues affecting our region. View agenda. Register online.

Building a Housing Policy That Works
On June 1 in Madison, 2012 Wisconsin Real Estate & Economic Outlook Conference will discuss what policies the current or the next administration should implement to design a healthy, responsible, functioning, and efficient housing market. Featured speakers include Karl “Chip” Case (co-founder of the Case Shiller Home Price Index); Lawrence Yun, Chief Economist of the NAR; and Curt Culver, President of MGIC.  Learn more.  Register now.

Events Calendar

May 3
AREIT Board Meeting
Madison, WI

May 17-19
Madison, WI

June 6-7
Graaskamp Center Spring Board Meeting
American Club
Kohler, WI

Sept 18-19
WREAA Trends Conference
Chicago, IL

October 16
Graaskamp Roundtable Dinner
Madison, WI

October 17
Wisconsin Real Estate & Economic Outlook Conference
Madison, WI

November 21
Fall Board Dinner
New York, NY

November 22
Global Real Estate Markets Conference
New York Stock Exchange
New York, NY